The Hindu Business Line : SBI hikes lending, deposit rates

State Bank of India, on Saturday, raised benchmark prime lending rates (PLR) by 50 basis points to 10.75 per cent. It has also raised home loan rates — both fixed and floating — by 25-50 basis points.

Union Bank of India, Punjab National Bank and Oriental Bank of Commerce also announced a hike in their PLR by 50 basis points. Union Bank of India's revised PLR stands at 11.25 per cent (10.75 per cent) and Oriental Bank of Commerce's at 11.5 per cent (11 per cent). Punjab National Bank has raised PLR to 11.25 per cent.

The impact

Union Bank in a news release said the hike takes into account the current level of cost of funds and the pressure on spread, thereby. "The increase in rate will impact advances with floating interest rate structure linked to BPLR. It will help improve spreads and bottomline of the bank," it said.

The Union Bank's Asset Liability Committee would decide on a possible revision on deposit rates "to keep pace with increasing resource requirements to fund the healthy credit offtake". PNB raised interest rates on domestic term deposits by 25-50 basis points, a PTI release said.

On Friday, Bank of Baroda had also increased its PLR by 50 basis points to 11 per cent. This hike would push up all floating loan rates, including home loans, the bank said.

At the end of March 2006, advances by all banks, including foreign, stood at Rs 11,51,137 crore. SBI accounted for Rs 202,374 crore, PNB's advances were at Rs 60,413 crore and Union Bank's at Rs 40,105 crore. These three banks alone accounted for 27 per cent of the total advances of the banking industry.

Other rates

SBI also raised the State Bank Advance Rate to 10.75 per cent from the existing 10.25 per cent.

"The bank wants to sustain its profitability as cost of deposits have been hiked," an SBI official said. SBI also revised interest rates on domestic term deposits by 25-50 basis points.

On Saturday, Dena Bank announced an upward revision in interest rates on NRE term deposits and FCNR and RFC term deposits.

Banks have been raising interest rates on deposits primarily to attract funds to meet growing credit demand. However, as cost of funds has been inching upwards, banks have also resorted to raising interest rates on loans, mainly home loans.

Earlier this month, in its annual policy statement for 2006-07, the Reserve Bank of India increased the risk weight on banks' exposures to commercial real estate and capital market to 150 per cent from 125 per cent.

SBI, in a statement to BSE, said floating rate for loans up to 5 years has been raised to 8.75 per cent (8.50 per cent) while fixed rate has been hiked to 9.50 per cent (9.25 per cent).

For loans above five years and up to 10 years, the new rates for floating are 9.25 per cent (8.75 per cent) and fixed 9.75 per cent (9.50 per cent). For loans above 10 years and below 15 years the new floating rate is 9.25 per cent (9 per cent).

For loans above 15 years and up to 20 years, the new floating rate has been pegged at 9.75 per cent (9.25 per cent).

SBI has a housing loan portfolio of about Rs 31,527 crore as of February 2006. That is about 12 per cent of its total advances.

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